ORAL ARGUMENT NOT YET SCHEDULED

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

ARKEMA INC., et al

Petitioners,

v.

UNITED STATES ENVIRONMENTAL 

PROTECTION AGENCY, 

Respondent.

 Nos. 09-1318 and 09-1335 

 (Consolidated) 

_________________________________________________________________ 

Petitions for Review Of Final Administrative Action

Of The United States Environmental Protection Agency 

__________________________________________________________________ 

BRIEF OF RESPONDENT ENVIRONMENTAL PROTECTION AGENCY

__________________________________________________________________ 

OF COUNSEL:

DIANE E. McCONKEY

Office of General Counsel

U.S. Environmental Protection Agency

Ariel Rios Building,

1200 Pennsylvania Avenue, N.W.

Mail Code: 2344A

Washington, D.C. 20460

Tel: (202) 564-5588

DATE: March 30, 2010

IGNACIA S. MORENO

Assistant Attorney General 

Environment & Natural Resources Div.

 

PERRY M. ROSEN

United States Department of Justice

Environment & Natural Resources Div.

Environmental Defense Section

P.O. Box 23986

Washington D.C. 20026-3986

Tel: (202) 353-7792

Counsel for Respondent EPA

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ii

CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES

Pursuant to Circuit Rule 28(a)(1), counsel for Respondent United States 

Environmental Protection Agency (“EPA”) acknowledges that Petitioner’s Brief 

correctly sets out the parties, rulings and related cases. References to the Ruling at 

issue appear in the brief for the Petitioner.

Respondent EPA is a governmental entity for which a corporate disclosure 

statement is not required.

CORPRATE DISCLOUSRE STATEMENT

So certified this 30th day of March, 2010, by

Perry M. Rosen

/s/ Perry M. Rosen

Counsel for Respondent EPA

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TABLE OF CONTENTS

TABLE OF AUTHORITIES................................................................v

GLOSSARY .................................................................................xi

STATEMENT OF THE ISSUES...............................................................................1

STATUTES AND REGULATIONS.........................................................................1

STATEMENT OF THE CASE..................................................................................2

STATEMENT OF FACTS ........................................................................................5

I. STATUTORY BACKGROUND ....................................................................5

A. The Montreal Protocol...........................................................................6 

 B. Title VI of the Clean Air Act ................................................................7 

II. REGULATORY BACKGROUND...............................................................11 

A. The 1993 Regulation: Governing the 1994-2002 Regulatory 

Period...................................................................................................12

B. The 2003 Regulation: Governing the 2003-2009 Regulatory 

Period...................................................................................................13 

C. The 2010 Regulation: Governing the 2010-2014 Regulatory 

Period...................................................................................................15 

SUMMARY OF ARGUMENT...............................................................................19 

ARGUMENT...........................................................................................................22

I. STANDARD OF REVIEW...........................................................................22 

II. THE 2010 REGULATION DOES NOT REVERSE EPA’S 

PURPORTED PRIOR INTERPRETATION OF THE CLEAN 

AIR ACT WITHOUT A REASONED EXPLANATION............................24

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A. EPA Maintained No Policy Which Called for Inter-Pollutant 

Transfers to be Carried Forward to the 2010-2014 Regulatory 

Period...................................................................................................25

B. EPA Adequately Explained its Bases for Not Recognizing 

Prior Inter-Pollutant Transfers in the New Regulatory 

Period...................................................................................................29 

C. EPA Fully Explained its Consideration of Market Factors in

Promulgating the 2010 Regulations....................................................37

D. Petitioners Availed Themselves of the Opportunity to Comment 

on Whether Title VI Allows Permanent Inter-Pollutant Transfers 

Allowances, Comments Which EPA Fully Considered......................42 

III. EPA’S INTERPRETATION OF THE CAA WAS A RATIONAL 

INTERPRETATION OF THE STATUTE ...................................................47

IV. THE 2010 REGULATION IS NOT IMPERMISSIBLY

RETROACTIVE............................................................................................57

CONCLUSION........................................................................................................60

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TABLE OF AUTHORITIES

CASES

Action for Children's Television v. FCC, 821 F.2d 741 (D.C. Cir. 1987) ..............36

America Farm Bureau Fed’n v. EPA, 559 F.3d 512 (D.C. Cir. 2009)..............23, 48

America Fed’n of State, County & Municipal Employees v. FLRA

 395 F.3d 443 (D.C. Cir. 2005)..............................................................................29

, 

American Iron & Steel Inst. v. EPA, 886 F.3d 390 (D.C. Cir. 2004)......................46

Biovail Corp. v. U.S. Food & Drug Admin.

 519 F. Supp. 2d 39 (D.D.C. 2007)........................................................................35

, 

Bluewater Network v. EPA, 372 F.3d 404 (D.C. Cir. 2004)...................................23

Bush Quayle v. FEC, 104 F.3d 448 (D.C. Cir. 1997)..............................................36

CSX Transp. Inc. v. Surface Transp. Bd., 584 F.3d 1076 (D.C. Cir. 2009)............46

Chemical Mfrs. Ass’n v. NRDC, Inc., 470 U.S. 116 (1985)...................................23

Chemical Waste Mgmt., Inc. v. EPA, 869 F.2d 1526 (D.C. Cir. 1989)..................59

*Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837 (1984) .............................22, 47

City of Portland v. EPA, 507 F.3d 706 (D.C. Cir. 2007) ........................................46

Covad Commc'ns Co. v. FCC, 450 F.3d 528 (D.C. Cir. 2006)...............................46

DirecTV, Inc. v. FCC, 110 F.3d 816 (D.C. Cir. 1997)............................................60

Environmental Integrity Project v. EPA, 425 F.3d 992 (D.C. Cir. 2005)...............46

*FCC v. Fox Television Stations, Inc.

________________________

, 129 S. Ct. 1800 (2009)............22, 29, 35, 36

* Authorities upon which EPA chiefly relies are marked with asterisks.

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Fertilizer Inst. v. EPA, 935 F.2d 1303 (D.C. Cir. 1991)..........................................46

Honeywell Int’l, Inc. v. EPA, 374 F.3d 1363 (D.C. Cir. 2004).................................7

Huls America Inc. v. Browner, 83 F.3d 445 (D.C. Cir. 1996) ..........................23, 48

Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007)..............................47

Mobile Relay Assocs. v. FCC, 457 F.3d 1 (D.C. Cir. 2006)...................................59

Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.

 463 U.S. 29 (1983)..........................................................................................22, 30

, 

NRDC v. EPA, 464 F.3d 1 (D.C. Cir. 2006).........................................................5, 6

NRDC v. EPA, 571 F.3d 1245 (D.C. Cir. 2009).....................................................23

Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Services

 545 U.S. 967 (2005)..............................................................................................30

, 

In re Permian Basin Area Rate Cases, 390 U.S. 747 (1968)...................................30

Public Citizen, Inc. v. FAA, 988 F.2d 186 (D.C. Cir. 1993)...................................35

Sinclair Broadcast Group, Inc. v. FCC, 284 F.3d 148 (D.C. Cir. 2002) .................59

Smiley v. Citibank, 517 U.S. 735 (1996).................................................................26

Tourus Records, Inc. v. DEA, 259 F.3d 731 (D.C. Cir. 2001)................................35

United States v. Mead Corp., 533 U.S. 218 (2001).................................................23

STATUTES

Clean Air Act, 42 U.S.C. §§7401-7671q (“CAA”):

Section 307(d)(3), 42 U.S.C. §7607(d)(3)...............................................................43

*Section 307(d)(8), 42 U.S.C. §7607(d)(8).......................................................23, 44

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Section 307(d)(9), 42 U.S.C. §7607(d)(9)...............................................................22

Sections 601- 608, 42 U.S.C. §§7671-7671q (Title VI)........................................2, 7

Section 601(2), 42 U.S.C. §7671(2) ........................................................................13

Sections 601(6), (11), 42 U.S.C. §§7671(6), (11) .....................................................2

Section 602, 42 U.S.C. §7671a..................................................................................7

Section 605, 42 U.S.C. §7671d..................................................................................7

Section 605(d), 42 U.S.C. §7671d(d) ......................................................................39

Section 606(a), 42 U.S.C. §7671e(a).........................................................................7

*Section 607, 42 U.S.C. §7671f ............................................................................4, 7

Section 607(a), 42 U.S.C. §7671f(a)..........................................................................8

Section 607(b), 42 U.S.C. §7671f(b)...................................................................9, 48

Section 607(b)(1), 42 U.S.C. §7671f(b)(1)..............................................................11

Section 607(c), 42 U.S.C. §7671f(c)....................................................................9, 11

Section 607(d), 42 U.S.C. §7671f(d).......................................................................11

Section 608(a)(3), 42 U.S.C. §7671g(a)(3) .............................................................33

REGULATIONS

40 C.F.R. §82.3 ........................................................................................................58

40 C.F.R. §82.15 ......................................................................................................27

40 C.F.R. §82.23 ......................................................................................................55

40 C.F.R. §82.23(d) .................................................................................................55

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FEDERAL REGISTER

56 Fed. Reg. 49,548, 49,561 (Sept. 30, 1991).........................................................41

58 Fed. Reg. 65,018, 65,026 (Dec. 10, 1993)..........................................................11

58 Fed. Reg. at 65,025 .............................................................................................12

58 Fed. Reg. at 65,026 ...........................................................................................12

59 Fed. Reg. 13,044 (Mar. 18, 1994).........................................................................6

65 Fed. Reg. 42,653 (July 11, 2000)..........................................................................6

65 Fed. Reg. at 42,655 ...............................................................................................6

*68 Fed. Reg. 2820, 2821 (Jan. 21, 2003).................................................................6

68 Fed. Reg. at 2821 ................................................................................................13

68 Fed. Reg. at 2822 ..................................................................................................8

68 Fed. Reg. at 2824, 2832 ......................................................................................13

68 Fed. Reg. at 2827 ................................................................................................12

68 Fed. Reg. at 2831-32...........................................................................................14

68 Fed. Reg. at 2831-33...........................................................................................13

68 Fed. Reg. at 2833 ..........................................................................................10, 14

68 Fed. Reg. at 2833-34...........................................................................................14

68 Fed. Reg. at 2835 ..........................................................................................14, 49

68 Fed. Reg. at 2849 ............................................................................................13

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73 Fed. Reg. 78,680 (Dec. 23, 2008) ("Proposed Rule") ........................................16

73 Fed. Reg. at 78,703 .............................................................................................50

*74 Fed. Reg. 66,412 (Dec. 15, 2009) (“2010 Regulation”).................................2, 6

74 Fed. Reg. at 66,413-16........................................................................................11

74 Fed. Reg. at 66,414 ...............................................................................................7

74 Fed. Reg. at 66,415 .......................................................................................13, 28

74 Fed. Reg. at 66,416 .........................................................................................7, 40

74 Fed. Reg. at 66,418 .............................................................................................58

74 Fed. Reg. at 66,419 .................................................................................18, 40, 41

74 Fed. Reg. at 66,419-20..................................................................................18, 19

74 Fed. Reg. at 66,419-21..................................................................................42, 59

74 Fed. Reg. at 66,420 .........................................................................17, 18, 41, 43

74 Fed. Reg. at 66,420-21......................................................................30, 31, 34, 39

74 Fed. Reg. at 66,420-22........................................................................................40

74 Fed. Reg. at 66,421 ...................................................................31, 32, 34, 41, 50

74 Fed. Reg. at 66,421-22............................................................................44, 49, 57

74 Fed. Reg. at 66,422 ...........................................................................................49

74 Fed. Reg. at 66,422-27........................................................................................33

74 Fed. Reg. at 66,423 .......................................................................................32, 33

74 Fed. Reg. at 66,424 .......................................................................................15, 16

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74 Fed. Reg. at 66,430-33........................................................................................39

74 Fed. Reg. at 66,434 .............................................................................................32

74 Fed. Reg. at 66,446 .............................................................................................50

74 Fed. Reg. at 66,446-47........................................................................................19

LEGISLATIVE MATERIALS

Chaffee-Baucus Statement of Senate Managers, reprinted in

 1 A Legislative History of the Clean Air Act Amendments of 1990

 (Comm. Print 1993) at 927 ..........................................................................................................53, 54

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AR Administrative Record

GLOSSARY

CAA Clean Air Act, 42 U.S.C. §§ 7401-7671q

CFCs Chlorofluorocarbons

EPA United States Environmental Protection Agency

HCFCs Hydrochlorofluorocarbons 

JA Joint Appendix

Proposed Rule 73 Fed. Reg. 78,680 (Dec. 23, 2008)

Protocol Montreal Protocol on Substances that Deplete the Ozone 

Layer 

1993 Regulation 58 Fed. Reg. 65,018 (Dec. 10, 1993)

2003 Regulation 68 Fed. Reg. 2820, 2821 (Jan. 21, 2003)

2010 Regulation 74 Fed. Reg. 66,412 (Dec. 15, 2009)

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1. In allocating a limited and ever-diminishing number of allowances to 

produce ozone-depleting substances, did EPA adequately explain why it chose not 

to recognize past inter-pollutant allowance transfers in setting baselines for the new 

2010-2014 regulatory step-down period?

STATEMENT OF THE ISSUES

2. Did EPA rationally interpret Title VI of the Clean Air Act, which 

declares that allowances for one type of ozone-depleting substance may be 

transferred for allowances of a different substance “for the same year,” as not 

providing for such inter-pollutant transfers to be given effect in subsequent 

regulatory periods?

3. Is EPA’s regulation governing allocation of ozone depletion 

allowances for the 2010-2014 regulatory step-down period, which does not govern 

actions that occurred prior to 2010, impermissibly retroactive because it 

purportedly interfered with Petitioners’ unilateral business expectations?

Pertinent statutes and regulations are contained in the statutory addendum to 

Petitioners’ brief. 

STATUTES AND REGULATIONS

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Arkema Inc. (“Arkema”), Solvay Fluorides, LLC, and Solvay Solexis, Inc. 

(“Solvay”) (collectively “Petitioners”), filed these consolidated actions challenging

a regulation issued by Respondent United States Environmental Protection Agency 

(“EPA”) entitled “Protection of Stratospheric Ozone: Adjustments to the 

Allowance System for Controlling HCFC Production, Import, and Export,” 74 Fed. 

Reg. 66,412 (Dec. 15, 2009), which became effective on January 1, 2010 (the

“2010 Regulation”). This Regulation is one in a series issued by EPA since 1990,

promulgated to effectuate a mandate of the Clean Air Act to phase out ozonedepleting substances, which are destroying the stratospheric ozone layer in our 

atmosphere.

STATEMENT OF THE CASE

Pursuant to Title VI of the Clean Air Act (“CAA”), 42 U.S.C. §§7671-

7671q, EPA has implemented the phase-out of ozone-depleting substances

primarily through the grant of “allowances” to those companies that historically 

produced and “consumed” these substances.

1

 1 “Production” refers to the manufacture of a covered substance. “Consumption” 

means production, plus imports and minus exports. 42 U.S.C. §7671(6), (11). 

Although Petitioners’ arguments apply equally to both production and 

consumption allowances, for ease of reference EPA describes the program in the 

context of production allowances and differentiates between the two types of 

allowances where relevant.

 Allowances, which act as a cap on 

production, permit companies to produce a designated percentage (established by 

EPA for each regulatory “step-down” period) of each individual company’s 

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baseline production of specific ozone-depleting substances. The baselines for the 

ozone-depleting substances at issue in this case, hydrochlorofluorocarbons 

(“HCFCs”), were established by EPA in 2003 and are measured by each 

company’s maximum annual production of HCFCs in any year between 1994 and 

1997. 

During the prior regulatory step-down period of 2003-2009, companies were 

permitted to conduct both inter-company and inter-pollutant transfers of HCFC

allowances. “Inter-company” transfers permit one company to transfer (sell) 

allowances for a single HCFC to another company. In contrast, “inter-pollutant”

transfers generally permit a single company to convert its own allowances 

allocated for one HCFC into allowances for a different HCFC which is in greater 

demand. 

Under this 2003-2009 regulatory regime, transfers of allowances were to 

occur within the same control period (i.e., the same year), but companies could, 

under certain circumstances, trade baseline allowances, which would effectively 

increase (for the transferee) or decrease (for the transferor) their baseline 

apportionment for the remainder of the regulatory period. Transfers of baseline 

allowances were, however, designed to be limited to inter-company, singlepollutant transfers, to ensure that the overall baseline associated with each 

chemical was not altered. Additionally, to the extent inter-pollutant baseline 

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transfers occurred, they had no defined status past the applicable regulatory period, 

which expired on December 31, 2009.

Petitioners are HCFC manufacturers and importers that previously availed 

themselves of the opportunity to convert allowances of one chemical (HCFC142b), for which there was diminishing market demand, into allowances of another 

chemical (HCFC-22), for which there was higher demand, i.e., inter-pollutant 

transfers. In the 2010 Regulation, EPA determined that it would not recognize 

inter-pollutant transfers conducted between 2003 and 2009 in setting the baselines 

for the 2010-2014 regulatory period, because recognition of such transfers would, 

inter alia

Petitioners do not challenge the substantive bases for EPA’s decision. 

Instead, Petitioners assert merely that EPA failed to adequately explain why it 

chose not to recognize past inter-pollutant trades in setting baselines for the 2010-

: facilitate potential manipulation of the market; significantly impact 

customers and users of HCFCs; require EPA to significantly reduce the allowances 

of every other HCFC producer in order to achieve the same degree of 

environmental protection; and significantly hinder EPA’s “worst-first” regulatory 

regime, which eliminates HCFCs by first targeting the specific chemicals with the 

highest ozone-depletion potential. EPA also found that recognizing inter-pollutant 

transfers in a subsequent regulatory period was not generally supported by the 

statute that provided for the transfer of allowances, 42 U.S.C. §7671f.

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2014 regulatory period and further failed to give notice in the Proposed Rule that

EPA might conclude that Title VI of the CAA does not support the perpetual 

recognition of inter-pollutant transfers. Petitioners separately assert that the 2010

Regulation is impermissibly retroactive, even though it expressly applies solely to 

actions taken on or after January 1, 2010.

EPA’s establishment of the 2010-2014 baselines scrupulously adheres to 

Congress’ mandate to eliminate HCFCs at least as fast as required by the 

international treaty upon which that mandate is based, is founded upon extensive 

market analysis, applies to Petitioners in exactly the same manner as it applies to 

every other covered entity, and applies only prospectively. Because EPA 

explained in great detail, after extensive comment from Petitioners, both the bases 

for its conclusions relating to the establishment of baselines and the manner in 

which Title VI should be interpreted, and because the 2010 Regulation has no 

application to inter-pollutant transfers which occurred prior to its promulgation, 

there exists no legal basis to grant the Petitions for Review. 

I.

STATEMENT OF FACTS

In the 1970s, scientists determined that certain man-made chemicals were 

destroying the layer of stratospheric ozone, which absorbs ultraviolet radiation. 

STATUTORY BACKGROUND

NRDC v. EPA, 464 F.3d 1, 3 (D.C. Cir. 2006). Increased exposure to ultraviolet 

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radiation can result in skin cancer and a host of other ailments. Id.

A.

The offending

chemicals, which are used as refrigerants and for other industrial purposes, include 

chlorofluorocarbons (“CFCs”) and hydrochlorofluorocarbons (“HCFCs”).

The Montreal Protocol

In 1987, the United States signed the Montreal Protocol on Substances that 

Deplete the Ozone Layer (the “Protocol”), which sought “to limit or eliminate the 

production and/or consumption of ozone-depleting substances in a stepwise 

fashion over time,” 65 Fed. Reg. 42,653, 42,655 (July 11, 2000), with an initial 

focus on CFCs. 59 Fed. Reg. 13,044 (March 18, 1994). In June 1990, the parties 

amended the Protocol to accelerate the phase-out schedule for CFCs, and identified

“HCFCs as transitional substitutes for chlorofluorocarbons (CFCs) and other more 

destructive ozone-depleting substances, but agreed to phase out HCFCs because of 

their significant potential to destroy stratospheric ozone as well.” 65 Fed. Reg. at 

42,655.

HCFCs, like CFCs before them, are to be phased out in a “stepwise fashion,” 

under which ever-reducing caps on these chemicals take effect on specific dates. 

74 Fed. Reg. at 66,412. Under the terms of the Protocol, the United States was 

required to phase out 35% of its historic HCFC production (measured by 1989 

levels) by 2004. 68 Fed. Reg. 2820, 2821 (Jan. 21, 2003). This “National Cap” 

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requires the United States to reduce its 1989 HCFC production levels by 75% by 

2010, 90% by 2015, 99.5% by 2020 and 100% by 2030. 74 Fed. Reg. at 66,414.

B.

In 1990, Congress enacted Title VI (Sections 601-618) of the Clean Air Act 

(“CAA”), 

Title VI of the Clean Air Act

42 U.S.C. §§7671-7671q, to protect the stratospheric ozone layer 

consistent with the Protocol. Honeywell Int’l, Inc. v. EPA

42 U.S.C.

§7671a

, 374 F.3d 1363, 1364 

(D.C. Cir. 2004). Title VI divides ozone-depleting substances into Class I,

consisting in part of CFCs, and Class II, consisting wholly of HCFCs. 

.

Under CAA §605, 42 U.S.C. §7671d, Congress directed EPA to promulgate 

regulations phasing out the production of HCFCs pursuant to a specific schedule. 

42 U.S.C. §7671d. EPA was to accelerate that schedule if any of a number of 

criteria, such as amendment of the Protocol step-down periods, occurred. CAA 

§606(a), 42 U.S.C. § 7671e(a). All of the established criteria for acceleration have 

been met and so EPA has issued an accelerated phase-out schedule for United 

States producers. 74 Fed. Reg. at 66,416.

To effectuate the phase-out of these substances, Congress directed EPA to 

promulgate rules that would create and manage allowances, which affirmatively 

limit the amount of Class II substances a manufacturer/importer may produce and 

consume. CAA §607, 42 U.S.C. §7671f. This provision does not direct EPA to 

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use any specific system for determining: (a) the underlying nature of allowances 

(e.g., whether they are based on specific chemicals or the overall ozone-depletion 

potential of a basket of chemicals); (b) the method of measuring the allowances 

(e.g., whether the allowances would be based on gross tonnage or a percentage of a 

defined baseline); or (c) the method of allocating the allowances (e.g., whether 

they will be auctioned to the highest bidder, allocated based on historical 

production, or adjusted to reflect changes in the marketplace). 

Instead, in directing EPA to promulgate regulations to create and manage 

allowances, and in particular the rules governing the transfer of allowances, 

Congress gave EPA a single, clear directive: “Such rules shall insure that the 

[transfer] transactions under the authority of this section will result in greater total 

reductions in the production in each year of class I and class II substances than 

would occur in that year in the absence of such transactions.” 42 U.S.C. §7671f(a) 

(emphasis added). See also

Pursuant to the broad authority it was granted, EPA promulgated regulations

that, 

JA 194, wherein Petitioner Arkema notes this as the 

only constraint on what is otherwise the “Agency[’s] broad discretion to fashion 

those regulations . . . .”

inter alia, allocated allowances on a chemical-by-chemical basis, rather than 

based on the ozone-depleting potential of a basket of chemicals, the system used 

by some other countries subject to the Protocol. 68 Fed. Reg. at 2822. Under the 

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“basket” concept, manufacturers can continue to produce all types of HCFCs so 

long as the aggregate ozone-depletion potential of the entire basket of HCFCs does 

not exceed the overall cap set by the administering agency. In contrast, the 

chemical-by-chemical approach, which EPA found considerably easier to 

administer for both EPA and regulated entities, focuses on reaching the same 

overall cap by initially eliminating those HCFCs with the highest ozone-depletion

potential, the so-called “worst-first” approach. 

In addition to authorizing EPA to allocate allowances, CAA §607 provides 

for two types of allowance transfers. Subsection (c), entitled “Trades with other 

Persons,” permits a company to transfer its allowances to another company (“intercompany” transfers). 42 U.S.C. §7671f(c). Thus, a company that has excess 

allowances of HCFC-22 may transfer (sell) some of those allowances to another 

company. When such a single-pollutant transfer occurs, the ultimate number of 

allowances for a particular HCFC to be potentially utilized by all U.S. producers 

and importers does not increase, since they are merely shifted to another entity.

Subsection (b) of CAA §607 allows for “inter-pollutant” transfers. 42 

U.S.C. §7671f(b). Under this provision, a company that had, for example,

expanded its market for HCFC-22, could convert its own unused allowances for a 

less popular chemical, such as HCFC-142b, to HCFC-22 allowances. In contrast 

to inter-company, single-pollutant transfers, an inter-pollutant transfer does result 

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in greater use and emissions of a specific HCFC, because it increases the 

allowances for a specific HCFC without a corresponding reduction of allowances 

for that same chemical at some other company.

2

When inter-pollutant transfers are conducted on an annual basis within a 

given regulatory period, they provide market flexibility without having significant 

effect on EPA’s chemical-by-chemical approach to the gradual elimination of 

HCFCs. If, however, past inter-pollutant transfers are allowed to impact future

regulatory periods (e.g., through permanent increases to a company’s baseline for 

production of a more desired HCFC), such transfers threaten the ability of EPA to 

use its worst-first approach to ensure that the United States will be able to meet the 

step-down requirements of the Protocol, since the caps set by EPA for that HCFC 

will be exceeded absent the promulgation of offsets (taken from other companies

or from allotments designated for recycling and reclamation) to compensate for 

such exceedences. 

Congress took special care to explain that inter-pollutant transfers were to 

be effective only for a given year: “The rules under this section [labeled ‘Interpollutant transfers’] shall permit a production allowance for a substance for any 

 2 Although inter-pollutant transfers can occur between different companies, e.g., 

where one company trades HCFC-142b allowances in exchange for another 

company’s HCFC-22 allowances, in practice such transfers are unusual. Thus,

inter-pollutant transfers are often referred to as “intra-company” transfers. 68 Fed. 

Reg. at 2833.

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year to be transferred for a production allowance for another substance for the 

same year on an ozone depletion weighted basis.” 42 U.S.C. §7671f(b)(1) 

(emphasis added). See also 42 U.S.C. §7671f(d), applying the same rule to 

consumption allowances. There is no similar cautionary “same year” language in 

the subsection governing inter-company transfers. See

II.

42 U.S.C. §7671f(c).

From the outset, EPA established “regulatory periods” that would match the 

step-down time periods for ozone-depleting substances contained in the Protocol. 

REGULATORY BACKGROUND

See, e.g., 58 Fed. Reg. 65,018, 65,026 (Dec. 10, 1993), explaining that EPA’s 

regulations contain “specific timetables for the phase-outs of each compound that 

EPA expects will result in full compliance with the phased reductions called for by 

the Protocol Amendment.” Regulating for specific time periods also allowed EPA 

to rework its regulatory framework as the Protocol was amended over the years to 

institute new treaty requirements, some of them reflecting substantial changes to 

the original Protocol. See e.g., 74 Fed. Reg. at 66,413-16, explaining the changes 

to the Protocol instituted under the London Amendment of 1990, the Copenhagen 

Amendment of 1992, the Beijing Amendment of 1999, and the Montreal 

Amendments of 2007.

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A.

In response to the Copenhagen Amendment of 1992, in 1993 EPA

established its chemical-by-chemical phase-out approach for HCFCs to implement 

the step-down periods under the Protocol. 58 Fed. Reg. 65,018, 65,025 (Dec. 10, 

1993) (the “1993 Regulation”). As part of this approach, EPA restricted the 

production of particular HCFCs to specified uses at the beginning of certain stepdown periods. 

The 1993 Regulation: Governing the 1994-2002 Regulatory Period

Id.

Although an allowance system for HCFCs would ultimately need to be 

implemented to reach the phase-out levels for 2010 and subsequent step-downs, 

EPA determined in the 1993 Regulation that it was premature to establish baselines 

for these chemicals during the 1994-2002 regulatory period. 58 Fed. Reg. at 

65,025. As EPA explained, the prudent approach to determining the appropriate 

baseline and allowances was for EPA to “continue to monitor the production and 

consumption of these chemicals [HCFCs] to determine the appropriate baseline to 

ensure that the requirements of the Copenhagen Amendments and the Clean Air 

Act are met.”

at 65,026. For the two HCFCs at issue in this case, HCFC-22 

and HCFC-142b, the 1993 Regulation prohibited production in 2010 and thereafter 

for all domestic uses, with an exemption allowing production until 2020 for the 

servicing of air-conditioning and refrigeration equipment manufactured before 

January 1, 2010 (the “after-market”). 68 Fed. Reg. at 2427. 

Id. 

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B.

In 2003, EPA set the baselines for the production and consumption of three 

HCFCs (HCFC-141b, HCFC-22, and HCFC-142b) and established the allowances 

for each company that would apply through December 31, 2009. 68 Fed. Reg. at 

2831-33 (the “2003 Regulation”). Specifically, EPA determined that each 

company could produce 100% of its baseline of HCFC-22 and HCFC-142b in 

2003-2009. 

The 2003 Regulation: Governing the 2003-2009 Regulatory Period

Id.

In the 2003 Regulation EPA also determined that for HCFC-22 and HCFC142b, the baseline year, defined in Title VI as “a representative calendar year 

selected by the Administrator,” 42 U.S.C. §7671(2), would be the year between 

1994 and 1997 when each company produced and consumed its highest level of 

HCFCs. 68 Fed. Reg. at 2824, 2832. Thus, allowances (defined as a set 

at 2849. This is because, using its “worst-first” approach, EPA 

achieved the initial phase-out levels of HCFCs required by the Protocol through a 

total ban of HCFC-141b, which had a higher ozone depletion potential than either 

HCFC-22 or HCFC-142b. 74 Fed. Reg. at 66,415. Identifying the two chemicals 

at issue in this case as next on the “worst-first” list, EPA warned in the 2003 

Regulation that prior to 2010 it would be issuing a new regulation to implement the 

2010 step-down reductions for HCFC-22 and HCFC-142b, a period which would 

require the United States to move from 35% below 1989 HCFC levels to 65% 

(later changed to 75%) below 1989 levels. 68 Fed. Reg. at 2821.

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percentage of a company’s baseline) would be based on each company’s maximum 

historical output.

3

The 2003 Regulation also spoke directly to the transfer of allowances. 68 

Fed. Reg. at 2833-34. EPA explained that while companies might choose to 

“conduct inter-pollutant transfers over the short term . . . , the opportunities for 

inter-pollutant transfers will decrease over time.” Id. at 2833 (emphasis added). 

The 2003 Regulation also included a specific section labeled “Permanent Transfers 

of Baseline Allowances,” in which EPA expressly defined a “permanent” transfer 

of baseline allowances as one that occurs, not through intra-company, interpollutant transfers, but rather between companies: “The permanent transfer of 

baseline allowances is a lasting shift of some quantity of a company’s allowances

to another company.” Id. at 2835 (emphasis added).

4

 3 EPA identified 1994-1997 because by 1998 companies had become aware of 

EPA’s intention to restrict HCFCs based on a company’s historic output and so 

could manipulate their output to generate a larger baseline. 68 Fed. Reg. at 2831-

32. In their Motion for a Stay filed in this case (Dkt. 1222488, hereinafter “Stay 

Brief”), Petitioners contended that EPA violated 42 U.S.C. §7671(2) by the manner 

in which it defined the “representative calendar year.” This argument lacks merit 

for at least five different reasons, including the fact that it was not raised during the 

administrative process. See EPA Brief, Dkt. 1226037 at 21-24. Although 

Petitioners continue to complain about EPA’s designation of the representative 

calendar year (Pet. Br. 51, n.18), their brief on the merits does not contest the 2010 

Regulation on this basis. Accordingly, EPA will not address that point herein.

 

4 Petitioners assert that this statement was meant only to be an example of a 

permanent transfer, Pet. Br. 38, but that clearly is not the case. The express 

language of this statement, its position as the first sentence under the heading 

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C. The 2010 Regulation: Governing the 2010-2014

Regulatory Period

Whatever inter-company or inter-pollutant trades may have occurred 

between 2003 and 2009, all allowances of all entities expired on December 31, 

2009. As EPA explained to Petitioners and others in 2008, unless EPA issued a 

new regulation establishing new allowances, as of January 1, 2010, no company 

would be permitted to produce or consume any of the HCFCs at issue. See e.g.

Because of the pending expiration of allowances on December 31, 2009, 

EPA initiated early steps to evaluate how to structure and operate an allowance

system in the next regulatory period. In or around 2005, EPA commissioned a 

“Servicing Tail Report,” designed to analyze market needs for continuing use of 

HCFCs after January 1, 2010. 74 Fed. Reg. at 66,424. EPA used its Vintaging 

Model tool to form the basis for quantitative estimates of projected HCFC demand 

and published a Notice of Data Availability in November 2005. 

, JA 

80 (“EPA noted that until a [new] rule is finalized, there are no allowances after 

2009 for HCFC-22 or HCFC-142b production or import.”); JA 63 (“No allowances 

exist after 2009 without [a new] rulemaking, [which] means no HCFC-22 or 

HCFC-142b production or import unless the rule is complete.”). 

Id.

 

“Permanent Transfers of Baseline Allowances,” and the context of the rest of that 

section, makes clear that EPA told stakeholders in 2003 that permanent transfers of 

baseline allowances were those that occurred between companies. 

 Between 2005

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and 2008, EPA updated its Servicing Tail Report several times to reflect the 2007 

Montreal Protocol amendments, consider more recent production data, and address 

more recent trends in the air conditioning and refrigeration sectors. Id.

In addition to assessing how best to address the market’s needs for continued 

use of HCFCs while they were gradually being eliminated, EPA retained outside 

consultants to help it analyze its “regulatory options for allocating HCFC 

allowances after 2009.” JA 15-23, March 2008 draft report of ICF International. 

This report outlined various regulatory options, describing the benefits and 

drawbacks of each. 

 

Id. Even at this early stage, Petitioners were aware that EPA 

might establish baselines in the new regulation that would not recognize prior 

baseline transfers. See, e.g.

On December 23, 2008, EPA issued its Proposed Rule. 73 Fed. Reg. 78,680

(“Proposed Rule”). In proposing as one alternative the possible continued use of 

the baselines it had used for the 2003-2009 regulatory period, EPA explained that 

although the Proposed Rule contained a table that reflected adjustments resulting 

from past inter-pollutant transfers as well as inter-company baseline transfers, EPA 

, JA 86 (a June 2008 stakeholders’ meeting where 

Petitioners asserted that EPA had previously allowed for the alteration of baselines 

“through permanent transfers of allowances” and offered their support for the 

continued use of a baseline concept “as long as . . . trading of allowances continues 

to be recognized”).

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was considering “establish[ing] a percentage of baseline allowances for each 

HCFC ‘with or without considering any permanent baseline transfers and/or interpollutant transfers that resulted in a different amount of production or consumption 

for a specific HCFC.’” 74 Fed. Reg. at 66,420 (emphasis added). 

Written comments on the Proposed Rule were submitted between March and 

May, 2009. Arkema and Solvay submitted a total of five sets of comments 

strenuously urging recognition of pre-2010 inter-pollutant baseline transfers in 

setting companies’ baselines for the next 5-year step-down period. JA 149-62; 

194-201. 

By Arkema’s own calculation, granting it the allowances it asserts it is 

entitled to based on its past inter-pollutant transfers, would add more than 4,600 

metric tons of HCFCs to the atmosphere due to its 2010 production alone. Arkema 

Stay Br. 10, n.3. In studying the accommodation that would need to be made to 

compensate for such increased production, EPA determined that if Petitioners’ 

prior inter-pollutant transfers were carried forward into the new regulatory period, 

EPA would have to reduce the allowances for the 19 other companies producing or 

importing HCFCs by nearly 16% below the allowances each would otherwise be 

allocated based on the designated percentage of their historical output. JA 262-63. 

On December 15, 2009, EPA issued the 2010 Regulation as a final rule. As 

EPA explained, for the period 2010-2014, it was not wedded – and certainly not 

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obligated – to use any system that continued the baselines established in the 2003 

rule, let alone a system that gave permanent effect to inter-pollutant transfers that 

occurred during 2004-2009. Indeed, EPA considered five options for reducing 

HCFCs during the 2010-2014 timeframe, including an auction system as well as 

allocating allowances based on recent chemical sales and use data. 74 Fed. Reg. at 

66,419. EPA explained that four of the five options “would require the Agency to 

disregard the existing baseline in its entirety and rely on another basis for 

allocating production and consumption allowances.” Id.

In considering the options, EPA recognized that every alternative it 

considered and virtually every manner in which it could apply different alternatives 

would benefit some entities at the expense of others. 74 Fed. Reg. at 66,419. That 

simply is the nature of a process under which EPA adopts methods for allocating a 

limited and diminishing number of allowances. For example, Arkema, Solvay and 

fellow existing importers and producers are advantaged over new market entrants, 

who receive no allocation of allowances under the 2010 Regulation but instead 

must purchase them from existing importers or producers. 74 Fed. Reg. at 66,419-

20. 

at 66,419-20. 

In the end, the 2010 Regulation implements an allocation system similar to 

that utilized in the prior step-down period. Id. at 66,419-20. For the reasons 

detailed infra, EPA ultimately chose not to reflect past inter-pollutant baseline 

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transfers in the baselines for 2010-2014. Id. Nevertheless, under the final 2010

Regulation, both Arkema and Solvay were granted the identical baselines each 

received in the 2003 regulation, which were themselves based on each company’s 

highest consumption and production years and are based on the same metric 

applied to all other regulated companies. 74 Fed. Reg. at 66,446-47. Additionally, 

Petitioners remain free under the 2010 Regulation to continue to conduct interpollutant transfers of different HCFC allowances to address changes in market 

demand, so long as they do so on an annual basis. Finally, both companies also 

may engage in inter-company transfers in an effort to utilize allowances in excess 

of their baselines. Thus, from a regulatory standpoint, Petitioners remain on the 

exact same footing as all other HCFC manufacturers and importers. 

Although Petitioners assert that EPA’s promulgation of the 2010 Regulation 

was arbitrary and capricious, they do not challenge the substantive bases EPA 

provided for choosing not to recognize prior inter-pollutant transfers in setting the 

baselines for the new 2010-2014 regulatory period. Instead, Petitioners’ central 

argument is that EPA merely failed to fully explain its actions.

SUMMARY OF ARGUMENT

 Petitioners pursue this argument by simply ignoring the express statements 

EPA made in the Preamble to the 2010 Regulation and in the administrative record

regarding each of the topics Petitioners assert EPA ignored. With blinders firmly in 

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place, Petitioners contend that although EPA admittedly had broad authority to 

alter its past policies, it could not possibly have provided an adequate explanation 

for doing so here because EPA: (a) refused to admit it had a prior policy allowing 

for the recognition of inter-pollutant transfers in perpetuity; (b) refused to adopt 

Petitioners’ own subjective view of how the marketplace should be analyzed when 

determining how to allocate allowances for a new regulatory period; and (c) failed 

to announce in its Proposed Rule its eventual interpretation of Title VI of the CAA.

First, EPA never maintained any policy allowing for the recognition of interpollutant transfers in perpetuity. Indeed, Petitioners themselves admitted that their 

own inter-pollutant transfers of allowances executed in 2008-2009, which they 

now assert EPA is required to recognize in the new regulatory period that began on 

January 1, 2010, lasted only until the end of the prior regulatory period, which 

expired on December 31, 2009. 

As to the issue of adequate notice, the response is quite simple: EPA 

discussed at great length each of the points Petitioners contend EPA ignored. Thus, 

while Petitioners may disagree with EPA’s conclusions on each of these points –

although they do not challenge those conclusions here – it cannot be said that EPA 

failed to adequately explain the bases for its conclusions.

As part of its analysis, EPA found that Petitioners’ reading of Title VI, which 

Petitioners assert requires EPA to recognize inter-pollutant transfers in perpetuity, 

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is not supported by the statute. EPA did not, as Petitioners contend, declare that it 

was expressly prohibited by the statute from recognizing such transfers. Instead, 

EPA concluded that the “better reading” of the transfer provision of Title VI, when 

considered in context and in light of the legislative history, is that the transfer 

provision -- which never even mentions the terms “baseline” or “permanent” --

does not sanction permanent inter-pollutant baseline transfers. This agency 

reading of an ambiguous statute, which Petitioners had ample opportunity to 

comment on, must be upheld unless it is irrational.

Finally, Petitioners contend that the 2010 Regulation is impermissibly 

retroactive because Petitioners relied upon their own expectation that EPA’s 

approval of certain baseline allowance transfers during the prior regulatory period 

would be carried forward into subsequent regulatory periods. This expectation is 

contradicted by Petitioners’ own admissions. Moreover, dashed hopes, 

expectations, and even reasonable business judgments do not transform a 

regulation that on its face is only applicable to events occurring during a new 

regulatory period, into impermissible retroactive agency action. The 2010

Regulation, which makes no attempt whatsoever to assign new consequences to 

any past inter-pollutant transfers, is not retroactive in any sense of the word.

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I.

ARGUMENT

STANDARD OF REVIEW

The applicable standard of review with regard to Petitioners’ challenge is set 

forth in CAA §307(d)(9), 42 U.S.C. §7607(d)(9). Under that standard, EPA’s 

action in promulgating the 2010 Regulation can be overturned only if it is 

“arbitrary, capricious, an abuse of discretion or otherwise not in accordance with 

law” or in excess of EPA's "statutory jurisdiction, authority, or limitations." Id.

“The scope of review under the ‘arbitrary and capricious’ standard is narrow 

and a court is not to substitute its judgment for that of the agency.” 

 

Motor Vehicle 

Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). See also

FCC v. Fox Television Stations, Inc.

Because Petitioners assert that EPA misinterpreted the Clean Air Act, the 

standards announced in 

, 129 S. Ct. 1800, 1810 (2009). 

Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837 (1984),

apply. Under Chevron, the Court first inquires whether Congress “has directly 

spoken to the precise question at issue,” in which case the Court “must give effect 

to the unambiguously expressed intent of Congress.” Id. at 842-43. If the statute 

is "silent or ambiguous with respect to the specific issue," the Court moves to 

Chevron's second step and must defer to the agency's interpretation so long as it is 

"based on a permissible construction of the statute." Id.

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Particular deference is to be given to an agency’s interpretation of a statute it 

administers when the statute is complex and within the agency’s expertise. United 

States v. Mead Corp., 533 U.S. 218, 227-31 (2001). The CAA is precisely this 

type of statute. NRDC v. EPA, 571 F.3d 1245, 1251 (D.C. Cir. 2009); Bluewater

Network v. EPA, 372 F.3d 404, 410 (D.C. Cir. 2004). When an agency's action 

relies on scientific or technical information touching upon the agency's area of 

expertise, a court applies “an extreme degree of deference.” Huls Am. Inc. v. 

Browner, 83 F.3d 445, 452 (D.C. Cir. 1996). See also Am. Farm Bureau Fed’n v. 

EPA, 559 F.3d 512, 519 (D.C. Cir. 2009). Thus, the Court need only find "that 

EPA's understanding of this very 'complex statute' is a sufficiently rational one to 

preclude a court from substituting its judgment for that of EPA." Chemical Mfrs. 

Ass’n v. NRDC, Inc.

Finally, to the extent EPA is alleged to have committed any procedural 

errors in issuing its final rule, “the court may invalidate the rule only if the errors 

were so serious and related to matters of such central relevance to the rule that 

there is a substantial likelihood that the rule would have been significantly changed 

if such errors had not been made.” 42 U.S.C. §7607(d)(8).

, 470 U.S. 116, 125 (1985).

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II. THE 2010 REGULATION DOES NOT REVERSE EPA’S 

PURPORTED PRIOR INTERPRETATION OF THE CLEAN

AIR ACT WITHOUT A REASONED EXPLANATION

Petitioners assert that the 2010 Regulation must be overturned because EPA 

had an established policy of allowing inter-pollutant transfers on a “permanent” 

basis and, although EPA was admittedly free to alter this “policy” for the 2010-

2014 regulatory period, it did not adequately explain why it chose to do so. Pet.

Br. 28-40. 

First, there simply existed no policy as Petitioners describe. While EPA 

provided for the transfer of baseline allowances for a single pollutant between 

companies, it did not express any policy sanctioning the conversion of baseline 

allowances for one pollutant into baseline allowances for a different pollutant. 

Moreover, even if EPA forms allowing companies to characterize inter-pollutant 

transfers as “baseline” transfers could be read as an implicit policy permitting such 

transfers, EPA never represented that inter-pollutant baseline transfers conducted 

within a given regulatory period would be incorporated into baselines assigned in 

subsequent regulatory step-down periods. 

Even more importantly given the nature of Petitioners’ claim, in considering 

various alternatives for allocating allowances for the 2010-2014 regulatory period, 

EPA affirmatively considered an alternative that would incorporate past interpollutant transfers into newly established baselines and, for a plethora of reasons 

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detailed in the Rulemaking and the Administrative Record, rejected this 

alternative. Accordingly, even if EPA had formerly maintained a policy of 

allowing inter-pollutant baseline transfers during the 2003-2009 regulatory period, 

it provided ample explanation why that policy would not be carried forward into 

the new regulatory step-down period. 

A. EPA Maintained No Policy Which Called for Inter-Pollutant

Transfers to be Carried Forward to the 2010-2014 Regulatory

Period

Petitioners exert considerable effort in piecing together various EPA 

statements that use the words “baseline,” “inter-pollutant” or “permanent” to try to 

manufacture a conclusion that EPA had established a policy to recognize prior 

inter-pollutant transfers in subsequent regulatory periods. Notwithstanding these

efforts to assign meanings to various partial statements, EPA has never declared 

that inter-pollutant transfers of HCFC allowances occurring between 2003and 2009 

would be recognized in subsequent step-down regulations enacted by the Agency. 

There simply is no such statement, and Petitioners cite to none. 

In the absence of any express statements sanctioning the recognition of interpollutant allowance transfers in subsequent regulatory periods, Petitioners point to 

their several inter-pollutant trades that EPA approved in 2008-2009 as evidence of 

a policy (or at least a practice) of allowing such transfers to be carried forward in 

perpetuity. Specifically, Petitioners assert that such a “policy” is reflected in the 

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government form they completed seeking approval of an inter-pollutant transfer 

and the associated one-page letter from EPA approving that request. Pet. Br. 14-

16, 33-35. 

An agency policy is evidenced by its express statements, not by divining the 

agency’s purported thought processes from check boxes on forms. Cf., Smiley v. 

Citibank, 517 U.S. 735, 742-43 (1996) (letters from the Comptroller of the 

Currency to the President and an Opinion letter from the Deputy Chief Counsel do 

not establish a policy of that agency). In any event, the forms Petitioners rely upon 

contain nothing more than a check-mark in the box labeled “Baseline Year 

Allowances,” and the letters they rely upon merely label the allowance type as 

“baseline.” JA 24-34. Nothing on the form or accompanying letters describes 

these transfers as applying in perpetuity. To the contrary, the letters Petitioners 

rely upon, which specifically address Petitioners’ inter-pollutant transfers labeled 

as “baseline,” expressly state: “Please note that production allowances and 

consumption allowances may only be expended during the twelve-month control 

period (January 1, 2008 to December 31, 2008) in which they were received.” JA 

24, 34. This is hardly an EPA policy statement that inter-pollutant transfers 

marked as “baseline” will be treated as permanent transfers of a company’s 

baseline allowances, let alone transfers that must be recognized in baselines 

established in future step-down periods.

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In addition to the forms and accompanying letters, Petitioners rely on two 

other documents that do nothing more than show that Petitioners’ prior interpollutant transfers were reflected in the proposed baselines for the 2010-2014 

period, Pet. Br. 35, citing JA 88-92, 145. As stated, EPA originally proposed to 

reflect inter-pollutant trades in the baselines for 2010-2014, but it ultimately chose 

not to do so. Thus, these documents and corresponding statements in the Proposed 

Rulemaking relied upon by Petitioners (see

Absent any express statements setting forth a policy to recognize interpollutant transfers in perpetuity, Petitioners cite to every reference they can find to 

the word “permanent” and argue that the use of this word establishes that EPA’s 

approval of inter-pollutant transfers in 2008-2009 effected a reallocation of 

baseline allowances that EPA is required to apply in perpetuity. This assertion, 

however, is belied by the nature of the regulations at issue and by Petitioners’ own 

admissions. 

Pet. Br. 36-37) merely reflect a 

rejected proposal that was never implemented, not an established policy.

As EPA explained in the 2010 Regulation: 

Prior to this rulemaking, EPA had not allocated any HCFC allowances 

for year 2010 or beyond. The regulations at 40 C.F.R. 82.15(a) and 

(b) only permitted the production and import of HCFC-22 and HCFC142b for the years 2003-2009. . . . Absent the grant of calendaryear allowances, §82.15 would prohibit their production and import 

after December 31, 2009.

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74 Fed. Reg. at 66,415. See also

As outlined above, EPA considered five alternatives for the allocation 

system to be implemented for 2010-2014, some of which (e.g., an auction system,

allocation of allowances based on recent sales) would clearly apply completely 

different concepts of a baseline. Certainly, Petitioners’ concept of “permanent” 

adjustments to their baseline could not, by operation of law, carry forward to the 

2010-2014 period if EPA was not required to even use the same criteria for 

baseline allocations for the 2010-2014 regulatory period.

JA 63 (“No allowances exist after 2009 without 

[a new] rulemaking . . . .”); JA 80.

Indeed, it is quite evident that Petitioners knew that any reference to a 

“permanent” transfer of baseline allowances was meant to apply only to the 

existing step-down period, and not to future step-down periods for which 

allowances did not yet exist. In submitting the forms on which Petitioners now 

rely for the purported EPA policy that inter-pollutant transfers must be carried 

forward to the 2010-2014 regulatory period, Petitioner Solvay declared: “[T]his 

transfer is for Baseline Year Allowances and therefore is being done on a 

permanent basis (i.e., multi-year transfer for 2008 and 2009).” JA 3 (latter 

emphasis added). 

Accordingly, the most that can be said about EPA’s approval of Petitioners’ 

inter-pollutant transfers in 2008 and 2009 is that it was a practice that, in 

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Petitioners’ view, should be carried forward to the next regulatory period. 

Understandably, Petitioners strenuously argued for just such a policy in their five 

sets of comments to EPA on the proposed rule for the 2010-2014 regulatory 

period. Those comments, however, rather than supporting Petitioners’ arguments, 

demonstrate that Petitioners understood that EPA’s decision as to whether to 

recognize inter-pollutant transfers in allocating allowances for 2010-2014 was an 

unsettled policy decision, not a requirement of some statute or regulation. As 

detailed below, EPA set forth in considerable detail why recognizing prior interpollutant transfers in the new 2010-2014 regulatory period was not prudent policy.

B. EPA Adequately Explained its Bases for Not Recognizing 

Prior Inter-Pollutant Transfers in the New Regulatory Period

Even if EPA had established a practice or even an express policy that called 

for the recognition of inter-pollutant baseline transfers in subsequent regulatory 

periods, Petitioners concede that EPA was free to alter that purported policy when 

it promulgated the 2010 Regulation, so long as it supplied a reasoned basis for

making the change. Pet. Br. 28-31. See also, Am. Fed’n of State, County & Mun. 

Employees v. FLRA, 395 F.3d 443, 449 (D.C. Cir. 2005); FCC v. Fox Television 

Stations, Inc., 129 S. Ct. at 1810. As the Supreme Court explained, virtually no 

agency interpretation or application of a statute or regulation is immune from being 

altered or even reversed if circumstances warrant it: 

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“An initial agency interpretation is not instantly carved in stone. On

the contrary, the agency . . . must consider varying interpretations 

and the wisdom of its policy on a continuing basis,” Chevron, supra

at 863-864 [], for example, in response to changed factual 

circumstances, or a change in administrations. That is no doubt why 

in Chevron itself, this Court deferred to an agency interpretation that 

was a recent reversal of agency policy.

Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 981-82 

(2005) (internal citation omitted). See also Motor Vehicle Mfrs. Ass’n v. State 

Farm Mut. Auto Ins. Co., 463 U.S. 29, 42 (1983) (“[R]egulatory agencies do not 

establish rules of conduct to last forever.”); In re Permian Basin Area Rate Cases,

390 U.S. 747, 784 (1968)

It is abundantly clear that EPA adequately explained the reasons for 

choosing not to recognize past inter-pollutant transfers in establishing baselines for 

the new regulatory period. First, EPA explained that while recognition of intercompany transfers of allowances for a specific pollutant provides a mechanism for 

new entrants to join or expand their role in the HCFC market, inter-pollutant

transfers do not have a similar beneficial effect. 74 Fed. Reg. at 66,420-21. As 

EPA further detailed, recognition of past inter-pollutant transfers in setting the 

baseline for the new step-down period could likely: 

(agencies must be given ample latitude to “adapt their 

rules and policies to the demands of changing circumstances”). 

• Create incentives for manipulation of the allocation system. JA 261-63; 74 

Fed. Reg. at 66,420-21. 

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• Effectively transform EPA’s chemical-by-chemical, “worst-first” phase-out 

system into one based instead on ozone depletion potential aggregated over a 

basket of chemicals, the system EPA rejected in 2003 and again as one of 

the alternatives in the 2010 Regulation. 74 Fed. Reg. at 66,420-21; JA 265-

66.

• Have an outsized impact on small companies involved in the production of 

HCFCs. JA 264.

• Interfere with market expectations, since “EPA agrees that it did not signal 

in the 2003 Allocation rule that companies could increase their relative 

percentage of the baseline by conducting intra-company, inter-pollutant 

transfers.” JA 264.

• Impact not only manufacturers and importers of HCFCs but also distributors 

and customers, due to market distortion and the inability of covered entities 

to comply with contract commitments. JA 265. 

• Disrupt the entire market in 2010, encourage disruption in future control 

periods, and reduce – not increase, as Petitioners assert – market flexibility. 

74 Fed. Reg. at 66,421.

• Require 19 of the 21 companies originally granted baselines and allowances 

in 2003 to relinquish nearly 16% of their allowances in 2010 to compensate 

for Arkema and Solvay being awarded baselines 38% and 912% above their 

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original baselines (which already were based on Arkema’s and Solvay’s 

maximum historical production and use), an action that could significantly 

impact the market for HCFCs. 74 Fed. Reg. at 66,421; JA 262-63.

As to this last point (offsets required to be taken from other producers), 

Petitioners argued in their Motion for a Stay in this action (but not in their merits 

brief) that EPA would not have to promulgate corresponding reductions of all other 

companies’ baselines because the 2010 Regulation allocates only 80% of the 

United States’ National Cap for 2010. Petitioners Stay Reply Br. (Dkt. 1226443) 

at 14-15. In other words, Petitioners contended there is room for increased 

emissions of HCFCs. 

In fact, there is no room for extra emissions because EPA made an express 

determination that it was necessary to set limits for U.S. production lower than 

those required to meet the Protocol’s 2010 phase-down step specifically to 

encourage the recycling and reclamation industry, so as to be able to meet 2015 

step-down requirements. 74 Fed. Reg. at 66,423. See also 74 Fed. Reg. at 66,434 

(“EPA does not intend to allocate the extra amount under the cap, except under 

unforeseen extraordinary circumstances, because it is important to promote greater 

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use of recycled and reclaimed material in anticipation of the next phase-down 

step.”).5

First, EPA is required to promulgate regulations designed to “maximize the 

recapture and recycling” of HCFCs. 42 U.S.C. §7671g(a)(3). Moreover, as EPA 

explained, the development of the reclamation and recycling segment of the 

industry is critical if the United States is to meet the more stringent Protocol limits 

that apply beginning in 2015. 74 Fed. Reg. at 66,423. 

 

As EPA explained, by allocating fewer allowances than are available to the 

United States under the Protocol’s caps for 2010-2014, “economic constraints for 

recovery and reclamation will therefore loosen and more recovered material being 

held in inventory may be reclaimed. EPA believes that encouraging the market for 

recovered material in this way will be the most effective and appropriate 

mechanism that this current rulemaking can take to increase recovery and 

reclamation.” Id. Indeed, even Petitioners concede that EPA should not allocate 

all of the allowances that might be available under the Protocol in order to promote 

reclamation. See

 5 “Recycling” is the process where HCFCs are recovered and charged back into 

equipment with the same ownership, while “reclamation” directs recovered HCFCs 

into the marketplace. Damage to the stratospheric ozone layer occurs generally 

when HCFCs are released through leakage or disposal of the operating unit (e.g., 

air conditioner) that utilizes the substance, not through the unit’s normal operation. 

Thus, reclaiming or recycling HCFCs is an integral part of the phasing out of these 

substances. 74 Fed. Reg. at 66,422-27.

JA 155, Arkema’s comments on the Proposed Rule: “The 

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Agency also made the right choice in not allocating 100% of the available 

allowances of HCFC-22 and HCFC-142b, which will further encourage 

reclamation.” 

The multiple bases outlined above for EPA’s rejection of the proposal to 

recognize past inter-pollutant trades in setting baselines for the 2010-2014 

regulatory period are so substantial, that Petitioners do not even attempt to assert 

that EPA’s reasoning was arbitrary, capricious or beyond its authority.6

 Indeed, 

Petitioners’ comments make clear that EPA’s concerns are legitimate. See, e.g.

 6 Petitioners’ only reference to the many bases provided by EPA for rejecting the 

proposal appears in a single paragraph in a footnote at the end of their brief, in 

which they state that “none of the supposed justifications for dishonoring past 

baseline transfers holds water.” Pet. Br. 59 n.20. Petitioners’ footnote criticizes

only two of the many factors relied upon by EPA, and even those criticisms clearly 

ignore the record developed by EPA. For example, Petitioners assert that although 

EPA was concerned about how “inter-pollutant transfers ‘could create incentives 

for future market manipulation of the allocation system in anticipation of future 

control periods, 74 Fed. Reg. at 66,421, [ ] EPA did not consider any evidence of 

manipulation . . . .” Pet. Br. 59 n.20. Quite to the contrary, EPA set forth several 

detailed examples explaining precisely how market manipulation could occur as a 

result of allowing inter-pollutant transfers of baselines. See JA 261-63; 74 Fed. 

Reg. at 66,420-21. See also pp. 51-52, infra, describing one such example.

, 

JA 159, where Arkema urges EPA to recognize inter-pollutant baseline transfers 

precisely because it “approximates the results of an ODP [ozone-depletion 

potential basket of chemicals] system” – the very system EPA rejected in 2003 and 

again in 2010 in favor of its chemical-by-chemical, “worst-first” regulatory 

regime. Instead, ignoring all of the reasons expressly stated by EPA, Petitioners 

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35

simply assert that EPA could not possibly have provided an adequate explanation 

for changing its purported policy because EPA refused to admit it had such a 

policy. Pet. Br. 30-32. 

EPA’s obligation to explain the bases for its policies or interpretations “is 

not particularly demanding.” Biovail Corp. v. U.S. Food & Drug Admin., 519 F. 

Supp. 2d 39, 45 (D.D.C. 2007). Nothing more than a brief statement is necessary,

as long as the agency explains its actions. Tourus Records, Inc. v. DEA, 259 F.3d 

731, 737 (D.C. Cir. 2001); Pub. Citizen, Inc. v. FAA

Petitioners argue that more is required when the agency fails to acknowledge 

that a past policy existed. They cite 

, 988 F.2d 186, 197 (D.C. Cir. 

1993). 

FCC v. Fox Television Stations, Inc., 129 S. 

Ct. at 1811, for the proposition that “[a]n agency may not, for example, depart 

from prior policy sub silentio or simply disregard rules that are still on the books.”

Pet. Br. 30. Actually, in Fox Television the Supreme Court expressly rejected the 

past view of several courts that required a “more substantial explanation for agency 

action that changes prior policy.” Id. at 1810. Referring to a requirement for a 

more searching review in such cases, the Court stated: “The Act [APA] mentions 

no such heightened standard. And our opinion in State Farm neither held nor 

implied that every agency action representing a policy change must be justified by 

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reasons more substantial than those required to adopt a policy in the first instance.”

The Court then went on to simply state the obvious -- that in order to provide 

some explanation of why an agency changed its policy, that agency necessarily has 

to address the policy at issue and explain why certain changes were made, i.e., it 

cannot change an established policy 

Id.

sub silentio

But it need not demonstrate to a court’s satisfaction that the reasons 

for the new policy are better than the reasons for the old one; it 

suffices that the new policy is permissible under the statute, that there 

are good reasons for it, and that the agency believes it to be better, 

which the conscious change of course adequately indicates. 

:

Id. at 1811 (third emphasis added). And, while the Court acknowledged that some 

additional explanation may be necessary “when its prior policy has engendered 

serious reliance interest that must be taken into account . . ., [i]n such cases it is not 

that further justification is demanded by the mere fact of policy change; but that a 

reasoned explanation is needed for disregarding facts and circumstances that 

underlay or were engendered by the prior policy.” Id.7

 7 The Circuit Court cases cited by Petitioners were decided years before FCC v. 

Fox Television, which rejected the view that a reversal of policy required a 

heightened standard of explanation. In any event, these cases merely stated the 

same rule as the Supreme Court, that an agency may not silently alter a longestablished policy. See e.g., Bush Quayle v. FEC, 104 F.3d 448, 449-51 (D.C. Cir.

1997); Action for Children’s Television v. FCC, 821 F.2d 741, 745-46 (D.C. Cir. 

1987).

 

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As outlined above, EPA was anything but silent about a policy designed to 

reflect prior inter-pollutant transfers in companies’ baselines for 2010-2014. EPA 

expressly proposed just such a policy for the new regulatory period. It then 

performed a reasoned analysis and detailed all of the bases for its decision to 

“consciously reject” the very policy that Petitioners assert EPA failed to 

acknowledge. Whether labeled a rejection of a regulatory option or a past 

(purported) policy, EPA’s explanation for consciously rejecting this policy for the 

2010-2014 regulatory period clearly is sufficient.

C. EPA Fully Explained its Consideration of Market 

Factors in Promulgating the 2010 Regulation

In a related but separate argument, Petitioners assert that EPA expressed a 

“longstanding recognition that competitive forces must be permitted to govern the 

market for HCFCs,” that EPA abandoned that practice in the 2010 Regulation, and 

that “this change of course is a further, independent, ground for vacating the Final 

Rule,” because EPA was required to explain why it abandoned this principle, and 

failed to do so. Pet. Br. 44-45. Specifically, Petitioners assert that in the 2010

Regulation EPA allocated allowances by

regulatory fiat that bear[s] no resemblance to the evolving market for 

HCFCs . . . , [t]his edict bequeaths additional market share to some 

companies at the expense of others, for no apparent reason . . . , [and] 

EPA has taken market share from companies that specialized in the 

HCFC-22 aftermarket – the only market that now survives – and 

gifted it to those that did not. Because EPA has abandoned, without 

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explanation, its position that transfers are necessary to allow a market 

to evolve naturally, its rule must be vacated.

Id.

First, Petitioners’ argument is based on an unsupportable premise: that EPA 

was required to base its regulation for the new regulatory period on market factors

as Petitioners describe them.

at 45. Petitioners’ assertions are baseless in every respect.

8

Congress, of course, could have directed EPA to protect existing producers, 

reward entities for servicing various aspects of the market, or make other marketoriented adjustments when establishing and allocating allowances. Indeed, where 

 Petitioners cite several statements referencing 

market flexibility in support of this proposition. Pet. Br. 45-48. Those statements 

– none of which refers to trading of baseline allowances or “permanent” transfers –

merely make the point that trading allowances can help companies reallocate 

resources to address changes in the market. None of these statements even 

suggests that in promulgating regulations under Title VI, EPA is required to 

eliminate offending chemicals in a manner that either promotes maximum market 

flexibility for affected companies or rewards companies for their past service to 

particular segments of the market.

 8 Petitioners refer to the market concept that EPA purportedly ignored with 

different labels, including a “well-functioning market,” “competitive forces,” a 

“reasonable representation of the marketplace,” “facilitating an efficient market,” 

“market principals,” “market realities,” and “market demand.” Pet. Br. 29, 44-50. 

For ease of reference, EPA refers to these concepts collectively as “market 

factors.”

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Congress deemed particular market segments to be important, that is precisely 

what it did. See

Petitioners’ second incorrect premise is that the 2010 Regulation “bequeaths 

additional market share to some companies at the expense of others.” First, it is 

undisputed in this case that, with some minor adjustments, the 2010 Regulation 

grants Arkema, Solvay and the other 19 other producers the same baseline each of 

them has had since 2003. 

42 U.S.C. §7671d(d), granting EPA authority to create a special 

exemption from the elimination of HCFCs for manufacturers of medical devices. 

In contrast, Petitioners identify no provision in the statute which requires EPA to 

give them special solicitude or to base its regulatory decisions on the specific 

market factors Petitioners identify as important. 

See 74 Fed. Reg. at 66,430-33.

9

 9 Those adjustments are made to reflect changes in companies’ identities since 

2003, make minor data corrections, and reflect inter-company, single-pollutant 

transfers, which EPA determined should be carried forward to the new regulatory 

period. 74 Fed. Reg. at 66,420-21.

 Moreover, it is the 

adoption of Petitioners’ position that would result in the very calamity they 

predict. Because EPA would have to issue new regulations to reduce the 

allowances of all other companies to compensate for the corresponding increase of 

Petitioners’ baselines well above their historic maximum production, EPA would 

be required to “bequeath” to Petitioners market share “at the expense of [all] 

others.”

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Setting aside the infirmities of the underlying premises of Petitioners’ 

argument, Petitioners’ assertion that EPA abandoned its consideration of market 

factors in issuing the 2010 Regulation is markedly incorrect. As outlined above,

EPA not only considered market factors, it commissioned outside studies to assess 

market factors and to analyze how different regulatory alternatives would impact 

the market. See, e.g.

Indeed, EPA analyzed the very market concepts that Petitioners assert EPA 

ignored. For instance, Petitioners assert that EPA should award allowances based 

on a company’s historic servicing of different subsets of the market -- which would 

automatically advantage Petitioners because they typically sold to the after-market,

which is the only HCFC-22 market remaining as of January 1, 2010. Pet. Br. 49. 

As EPA explained, this alternative was rejected because, 

, JA 15-23, 202-49. As the Agency explained, “EPA has 

monitored the market to estimate servicing needs and market adjustments in the 

use of HCFCs . . . .” 74 Fed. Reg. at 66,416. In fact, EPA specifically stated that 

“[t]he allocations for HCFC-22, HCFC-142b reflect EPA’s analysis of market data 

for these chemicals.” 74 Fed. Reg. at 66,419.

inter alia, it would have 

been inconsistent with EPA’s past practices which the industry relied upon, would 

be difficult to accurately assess, and would reward past actions that may have been 

taken to manipulate future baselines. 74 Fed. Reg. at 66,420-22; JA 19, 260-65. 

Indeed, Petitioner Solvay stated that it would “not endorse” an allocation system 

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based on whether a producer had been servicing original manufacturers of 

equipment or the after-market, because these markets were so intermingled that 

many companies did not have reliable data upon which such differentiations could 

be made with any level of “integrity.” JA 151.

As reflected in the many reasons outlined above, EPA chose to maintain 

essentially the same baselines originally granted in the 2003 regulation based in 

significant part on its analysis of market factors. See 74 Fed. Reg. at 66,419 

(reallocating the original baselines without Petitioners’ desired adjustments would 

be “the least disruptive to the current market and best ensures a continued smooth 

transition away from ozone-depleting substances”); id. at 66,420 (the option 

adopted seeks “to minimize unanticipated changes and prevent market 

disruptions”); id.

As Petitioners point out, to the extent Congress had concerns regarding 

market forces, EPA addressed those concerns by seeking to eliminate these 

damaging chemicals while, to the extent possible, “afford[ing] industry flexibility.” 

Pet. Br. 46 (quoting 56 Fed. Reg. 49,548, 49,561 (Sept. 30, 1991)) (emphasis 

added). The 2010 Regulation serves that goal by ensuring that the entire industry

does not have to disrupt market expectations to compensate for allowances handed 

at 66,421 (the option adopted “reflects the changes in the 

marketplace that have occurred since the last time EPA addressed these 

baselines”).

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to just two entities, while allowing all companies the flexibility to make both intercompany and also inter-pollutant transfers on an annual basis. See 74 Fed. Reg. at 

66,419-421. Although Petitioners are free to disagree with EPA’s conclusions, it is 

overwhelmingly clear that EPA considered and explained how market factors 

influenced its decision on how to allocate baselines and allowances for 2010-

2014.10

D. Petitioners Availed Themselves of the Opportunity to Comment 

on Whether Title VI Allows Permanent Inter-Pollutant Transfers 

of Allowances, Comments Which EPA Fully Considered

In their final argument relating to a purported lack of explanation, 

Petitioners assert that “EPA’s failure to provide a reasoned analysis is compounded 

by its failure to subject its new interpretation of the CAA to the procedures of

notice and comment.” Pet. Br. 40. They contend that EPA violated CAA 

 10 Amici, who emphasize the importance of market stability in a cap and trade 

program, ignore the above-described impacts to industry flexibility and the 

marketplace, focusing instead on the purported expectations of only the two 

Petitioners. While certainty of business expectations is a consideration in 

generating regulations, it is important to consider the expectations of all regulated 

entities. Here, the 19 other HCFC producers and importers conducted their 

businesses based on the expectation that they would be allocated a baseline 

undiminished by the effect of other companies’ inter-pollutant trades. 74 Fed. Reg. 

at 66,419-21. Further, EPA’s approach to inter-pollutant transfers in the 2010 

Regulation is based on the context and history of the HCFC phase-out program 

under CAA §607; it does not address the legality or appropriateness of such 

transfers in the context of other statutes or cap and trade programs. In any event, 

the arguments made by Amici are policy arguments that should have been made 

during the administrative process. 

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§307(d)(3), which requires that EPA include in a proposed rule subject to section 

307(d) a statement of the “major legal interpretations and policy considerations 

underlying the proposed rule,” 42 U.S.C. § 7607(d)(3). Specifically, Petitioners 

contend that because one of the many bases EPA provided for deciding not to 

recognize past inter-pollutant trades in the baselines for 2010-2014 was that Title 

VI of the CAA did not tend to support such a position, the 2010 Regulation is 

invalid because EPA should have set forth in its Proposed Rule its interpretation of

the transfer provision of Title VI, CAA §607. Pet. Br. 40-44. 

As noted above, EPA expressly stated in the Proposed Rule that it was 

considering “establish[ing] a percentage of baseline allowances for each HCFC 

‘with or without considering any permanent baseline transfers and/or interpollutant transfers that resulted in a different amount of production or consumption 

for a specific HCFC.’” 74 Fed. Reg. at 66,420. This statement is a clear indication 

that EPA would be considering both “legal interpretations and policy 

considerations” on the issue of the permanence of inter-pollutant transfers.

Of course, EPA could not have set forth in the Proposed Rule how it would 

ultimately interpret CAA §607, since it had not yet gone through the comment and 

analysis process. As evidenced by its equivocal statement quoted above, EPA 

specifically invited public comments on the issue of the permanence of interpollutant trades. While CAA §307(d)(3) does require some type of notice of a 

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legal interpretation EPA intends to apply, section 307(d)(6)(A) specifically 

contemplates the situation where EPA cannot announce its legal interpretations 

because that is part of the comment and analysis process. Under this latter 

provision, EPA can take a position different than that set forth in the proposed rule 

(as EPA suggested it might in the Proposed Rule), so long as it explains its reasons 

for doing so, which EPA quite obviously did. See pp. 30-32, supra. See also

In any case, section 307(d) states that with regard to purported procedural 

errors such as the lack of notice in a proposed rule of EPA’s statutory 

interpretation, “the court may invalidate the rule only if the errors were so serious 

and related to matters of such central relevance to the rule that there is a substantial 

likelihood that the rule would have been significantly changed if such errors had 

not been made.” CAA §307(d)(8), 42 U.S.C. §7607(d)(8) (emphasis added). Such 

a finding would be misplaced here since any “error” associated with not 

announcing potential legal interpretations of CAA §607 in the Proposed Rule 

clearly was cured during the rulemaking process. 

74 

Fed. Reg. 66,421-22, explaining EPA’s interpretation of section 607. 

Claiming that EPA’s interpretation of Title VI of the CAA is a novel 

interpretation suggested by Honeywell Corporation, Petitioners are forced to admit 

that “Arkema submitted a comment . . . urging EPA not to consider Honeywell’s 

novel interpretation of the CAA, JA 194-96.” Pet. Br. 43. Indeed, one full set of 

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Arkema’s comments is devoted almost exclusively to the argument that EPA is 

required by CAA §607 to recognize inter-pollutant baseline trades in setting the 

baselines for the new regulatory period. JA 194-96.

Petitioners assert that this comment was submitted “after the comments 

period had closed,” seeking to leave the impression that it was ignored by EPA. 

Pet. Br. 43. To the contrary, these comments were included in the Docket and 

Administrative Record in this case and were fully considered by EPA. Indeed, 

referring to Arkema’s “supplemental comments,” EPA expressly addressed 

Arkema’s argument that CAA §607 required EPA to recognize past inter-pollutant 

baseline transfers. JA 258-62.

Thus, applying the highly deferential standard set forth in CAA §307(d)(8) 

for overturning a rulemaking based on a procedural error, one cannot conclude that 

there is any likelihood, let alone a “substantial” likelihood, that the final rule would 

be different if EPA had detailed its ultimate interpretation of section 607 in the 

preamble to the Proposed Rule, because EPA already has fully addressed and 

considered all comments and arguments that might have been made had it outlined 

that interpretation in the preamble of the Proposed Rule.

Petitioners nevertheless argue that EPA’s interpretation of Title VI of the 

CAA contained in the 2010 Regulation was not a “logical outgrowth” of the 

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Proposed Rule. Pet. Br. 42-43. This is a clear misapplication of the “logical 

outgrowth” doctrine. As this Court has stated:

“[A]n agency may issue rules that do not exactly coincide with the 

proposed rule as long as the final rule is the ‘logical outgrowth’ of the 

proposed rule.” Fertilizer Inst. v. EPA, 935 F.2d 1303, 1311 (D.C. Cir. 

1991). “Under the ‘logical outgrowth’ test . . . , the key question is 

whether commenters ‘should have anticipated’ that EPA might” issue 

the final rule it did.

City of Portland v. EPA, 507 F.3d 706, 715 (D.C. Cir. 2007) (citations omitted). 

See also CSX Transp. Inc. v. Surface Transp. Bd., 584 F.3d 1076, 1079-80 (D.C. 

Cir. 2009) (“A final rule qualifies as a logical outgrowth ‘if interested parties 

“should have anticipated” that the change was possible, and thus reasonably should 

have filed their comments on the subject during the notice-and-comment period.’ 

[citations omitted].”); Covad Commc’ns Co. v. FCC

Petitioners cannot claim that they were “lured in” to some type of legislative 

complacency by the fact that the Proposed Rule recognized inter-pollutant baseline 

transfers. It is always a possible outcome, and therefore a logical outgrowth of a 

proposed rule, that the agency will not, in fact, adopt the rule or some portion 

thereof. 

, 450 F.3d 528, 548 (D.C. Cir. 

2006). As noted, Petitioners did file comments that specifically addressed the 

legal interpretation of section 607.

See, e.g., Envtl. Integrity Project v. EPA, 425 F.3d 992, 997 (D.C. Cir. 

2005) (“Of course, there is nothing objectionable in the Agency’s refusal to adopt 

its proposed amendments . . . .”); American Iron & Steel Inst. v. EPA, 886 F.3d 

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390, 400 (D.C. Cir. 2004) (“One logical outgrowth of a proposal is surely, as EPA 

says, to refrain from taking the proposed step.”). And the agency may reject the 

proposed rule precisely because it is not supported by the underlying statute. See 

e.g., Long Island Care at Home, Ltd. v. Coke

 In the end, any party is free in the Court of Appeals to argue that a regulation 

is not supported by the underlying statute, and it may present past agency 

interpretations, legislative history, and other interpretations of the statute at issue in 

its brief to the Court. Indeed, that is precisely what Petitioners have done here. 

, 551 U.S. 158, 174-75 (2007) 

(finding that an agency’s decision not to adopt the proposal it had set forth in its 

Proposed Rule because rejecting the proposal “is more consistent with the statutory 

language,” was a “logical outgrowth” of the proposed rule).

See discussion, infra

III. EPA’S INTERPRETATION OF THE CAA WAS A 

. Petitioners fail to identify what they could argue regarding 

statutory interpretation in a remand to the Agency that they have not already 

argued to EPA in their comments and to this Court in their briefs.

RATIONAL INTEPRETATION OF THE STATUTE

As outlined supra, where a statute clearly states on its face Congress’ 

directive, it must be applied by the agency and the Court. Where, however, the 

statute is "silent or ambiguous with respect to the specific issue," the Court must 

defer to the agency's interpretation so long as it is "based on a permissible 

construction of the statute." Chevron, 467 U.S. at 842-43. Indeed, EPA’s 

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interpretation is to be accorded “an extreme degree of deference,” Huls Am. Inc. v. 

Browner , and should not be overturned unless it is not at least one 

of several rational interpretations. 

, 83 F.3d at 452 

Am. Farm Bureau Fed’n v. EPA

It is quite evident that CAA §607, the provision dealing with transfers of 

allowances, does not expressly address whether inter-pollutant transfers 

characterized as “baseline” are to be deemed “permanent” and reflected in 

subsequent regulatory periods. Indeed, the words “permanent” and “baseline” 

appear nowhere in section 607. As outlined 

, 559 F.3d at 

519.

supra

CAA §607 declares: “The rules under this section [to be promulgated by 

EPA] shall permit a production [and consumption] allowance for a substance for 

any year to be transferred for a production [or consumption] allowance for another 

substance for the same year on an ozone depletion weighted basis.” 42 U.S.C. 

§7671f(b) (emphasis added). EPA summed up its analysis of this operative 

language as follows:

, p. 8, Congress left it to the 

broad discretion of EPA to determine how transfers of baselines are to be treated. 

Given this built-in discretion and the silence of section 607, it is left for EPA to 

reasonably interpret what constraints, if any, Congress placed on the establishment 

of baselines for each step-down period.

After considering the language of section 607 and the legislative 

history, EPA believes that section 607(b) is best read as permitting 

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only year-by-year inter-pollutant transfers. Section 607(b) states that 

EPA’s rules are to permit “a production allowance for a substance for 

any year to be transferred for a production allowance for another 

substance for the same year.” This language emphasizes the year-byyear nature of such transactions. No parallel language appears in 

section 607(c) [which governs inter-company transfers]. 

74 Fed. Reg. at 66,421-22. 

This was not a new interpretation regarding the limits of inter-pollutant 

transfers in contrast to inter-company transfers. As EPA had explained in 2003 

when it first set baselines for HCFCs, “[t]he permanent transfer of baseline 

allowances is a lasting shift of some quantity of a company’s allowances to 

another company,” which is governed by Section 607(c). Id.

As EPA detailed, a program that allows for inter-pollutant transfers on an 

annual basis provides market flexibility by permitting a company to adjust its 

production based on market demand. However, once inter-pollutant transfers are 

carried forward to a new regulatory period in the form of a permanent baseline 

adjustment, that transfer does not merely affect the company conducting the 

transfer, it has a significant impact on all other manufacturers, because it requires

them to reduce their production to compensate for the increased production of the 

specific HCFC afforded to the company conducting the transfer. JA 261-63. As 

EPA pointed out, this results in less – not greater – market flexibility by allowing 

one or two companies to potentially manipulate the entire marketplace by 

at 66,422 (quoting 68 

Fed. Reg. at 2835). 

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increasing their own allowances for a high-demand HCFC to the detriment of all of 

their competitors. 74 Fed. Reg. at 66,421.

In their own analysis of Section 607, Petitioners do not quarrel with the 

notion that the intent of the inter-pollutant transfer provision, section 607(b), is to 

prohibit a company from engaging in trades that will allow it to use allowances in a 

subsequent year. Pet. Br. 57. Instead, attempting to divorce the concept of 

baselines from allowances, Petitioners assert that the transfer of a baseline “does 

nothing to move allowances from one year into another, so baseline trades are 

entirely consistent with CAA §607(b).” Id.

An allowance under Title VI is simply a percentage of a baseline: the 

percentage being the numerator and the baseline being the denominator. For 

example, for 2010 any company that produced HCFC-22 during the baseline years 

may produce 41.9% of its baseline. 74 Fed. Reg. at 66,446. Arkema’s baseline for 

HCFC-22 as listed in the 2010 (Final) Regulation is 28,219,223 kg. 

, n.19. This is nothing more than 

semantic gymnastics that seeks to contort the clear application of the statute.

Id. Thus, 

under the 2010 Regulation, Arkema’s production allowance for 2010 is 11,823,854 

kg of HCFC-22 (41.9% of 28,219,223 kg). As set forth in the Proposed Rule,

under which Arkema’s prior intra-company baseline transfers were reflected in its 

baseline for 2010, its baseline for HCFC-22 would be 46,692,336 kg. 73 Fed. Reg. 

at 78,703. If EPA were to promulgate a revised rule that awarded Arkema a 

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baseline that reflected past inter-pollutant transfers, Arkema would end up with a 

production allowance for 2010 of 19,564,088 kg HCFC-22 (41.9% of 46,692,336 

kg). Thus, recognition of baseline transfers from the years 2008 and 2009 would 

allow Arkema to produce nearly 8 million more kilograms (nearly 8,000 metric 

tons) of HCFC-22 in 2010 than under the 2010 Regulation as currently 

promulgated. 

Since an allowance is defined as one kilogram of an HCFC, even using 

Petitioners’ parlance, recognition of Arkema’s past inter-pollutant transfers results, 

in the absence of other adjustments, in the effective transfer of 8 million 

allowances from earlier years into 2010. And because a baseline transfer 

essentially replicates itself each year, recognition of Arkema’s transfer of interpollutant baselines allowances conducted in 2008-2009 would effectively give 

Arkema tens of millions of extra allowances through the end of the 2010-2015 

regulatory period. 

Indeed, EPA has explained how a company could use inter-pollutant 

baseline transfers to create allowances for another chemical that will outlive the 

regulatory life of the transferred chemical. JA 261. For example, in 2019 a 

company could convert its HCFC-22 allowances into HCFC-123 allowances 

through an inter-pollutant baseline transfer. In 2020, the HCFC-22 allowances 

would live on in the form of HCFC-123 allowances even though the regulation 

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calls for HCFC-22 allowances to be totally eliminated in 2020. Id. Such market 

manipulation could effectively destroy EPA’s worst-first regulatory regime by 

perpetuating allowances that were intended to be abolished. 

Petitioners also assert that if EPA interpreted section 607(b)’s emphasis on 

the year-by-year nature of inter-pollutant transfers as prohibiting such transfers

from becoming permanent, then EPA should have inferred a similar restriction 

from language in section 607(c) which governs inter-company transfers, because it 

contains the word “annual.” According to Petitioners, because EPA did not make 

this inference, its statutory interpretation of section 607(b) must be flawed. Pet. 

Br. 58. 

Id.

A mere glance at these two provisions disproves Petitioners’ argument. 

Section 607(b), which deals only with inter-pollutant transfers, expressly 

“permit[s] a production allowance for a substance for any year to be transferred for 

a production allowance for another substance for the same year. . . .” Section 

607(c), which deals only with inter-company transfers, contains no such language. 

It merely states that one of the parties, the transferor, must be subject to “an 

enforceable and quantifiable reduction in annual production which,” inter alia, 

exceeds the production allowances transferred. There is nothing about this 

language that, like the language of section 607(b), requires an inter-company 

transfer to be for the “same year.” Instead, the language of section 607(c) is 

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simply part of a more detailed exposition of the general principle in section 607(a) 

that trades under any of the provisions of section 607 are to result in a benefit to 

the environment. 

Petitioners’ semantic gyrations over the legislative history of Section 607 are 

no less contorted. The relevant legislative history is summarized in three 

paragraphs of the Chaffee-Baucus Statement of Senate Managers under the 

Heading “Exchange Authority – New Section 607.” 1 A Legislative History of the 

Clean Air Act Amendments of 1990

[A] producer may decide to reduce CFC-11 by an amount greater than 

is required in a given year and, in the same year, be authorized to 

produce a greater amount of CFC-113 than would otherwise be 

allowed. With the exception of such inter-pollutant transfers, the bill 

does not authorize the exchange of production allowances.

(Comm. Print 1993) at 927. As stated therein, 

the Senate version of the bill allowed for inter-pollutant transfers in the same year. 

In describing how such inter-pollutant transfers would work, the report states: 

Id. (emphasis added). While the House bill “direct[ed] the Administrator to 

promulgate regulations regarding the exchange of production allowances,” it “does 

not authorize inter-pollutant transfers.” Id.

The Conference Agreement addressed differences in the two bills by 

combining the two separate concepts, not by adding the concept of inter-pollutant 

 Thus, neither bill was intended to 

allow for an inter-pollutant transfer executed in one year to have effect in 

subsequent years. 

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transfers to occur over multiple years, as Petitioners contend. The report states: 

“Conference Agreement. The Administrator is directed to promulgate regulations 

that will authorize inter-pollutant transfers, as in the Senate bill, and trades with 

other persons, as in the House amendment.” Id. (emphasis added). The 

Conference Agreement did not call for the final bill to allow for inter-pollutant 

transfers in addition to those set forth in the Senate bill but rather to “authorize 

inter-pollutant transfers, as in the Senate bill . . . .” As explained, such transfers 

were expressly limited to those which could occur solely within the same year. Id.

Petitioners review the identical legislative history and come to a different 

conclusion, not by citing actual statements in the report but by imbuing that report

with a gloss that does not actually exist in the written words. For example, 

Petitioners assert that the final bill incorporates an approach of the Senate that was 

designed to “maximize industry flexibility,” Pet. Br. 55, words that do not appear 

in the relevant legislative history. They further postulate that “free trading of 

HCFCs was inherent in [the Senate’s] approach,” Pet. Br. 56, again citing to no 

actual statements supporting this conclusion.

 

11

 11 In support of this proposition, Petitioners merely cite the Senate bill which took 

the “basket of chemicals” approach and declare that this evidences the Senate’s 

desire for flexibility. Pet. Br. 55-56. It evidences nothing of the sort, but in any 

case, as outlined above, this approach was not mandated by Congress or adopted 

by EPA in establishing the HCFC allowance program.

 Regardless of any purported – and 

unstated – desire for industry flexibility or a free trading bias, Petitioners simply 

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ignore the express limitation the Senate placed on inter-pollutant transfers; that 

they may only occur in the “same year.” While the legislative history is sparse, it 

certainly cannot be interpreted to require EPA to recognize previously executed 

inter-pollutant transfers in setting baselines in subsequent regulatory periods.

Finally, Petitioners assert that EPA’s regulation governing transfers of 

allowances, 40 C.F.R. §82.23, contradicts EPA’s interpretation of the statute. Pet. 

Br. 32-33. Again, Petitioners fail to cite to any express statement in the regulations 

supporting their view. Instead, Petitioners surmise that if EPA had intended to 

exclude inter-pollutant transfers from the category of permanent transfers, it would 

have structured the regulation differently. Id. This, of course, is nothing more 

than pure supposition, wholly unsupported by the regulation or anything in the 

record. Moreover, the provision most relevant to the issue, 40 C.F.R. §82.23(d), 

expressly states: “A person receiving a permanent transfer of baseline production 

allowances or baseline consumption allowances (the transferee) for a specific Class 

II controlled substance will be the person who has their baseline allowances 

adjusted in accordance with phase-out schedules in this section.” This provision 

contemplates an inter-company transfer of baseline allowances, since there would 

be no reason to identify which party receives the baseline adjustment if it was a 

one-party transaction.

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Petitioners readily admit that EPA must be accorded broad discretion in 

interpreting its authority under an ambiguous statute. Pet. Br. 52. Apparently for 

this reason, Petitioners suggest that this deferential standard cannot be applied in 

this case because EPA did not actually exercise its discretion in interpreting the 

statute because it mistakenly believed it was prohibited from doing so. Pet. Br. 51-

52. See also

In referring to EPA’s conclusions related to its statutory authority, 

Petitioners use words like “foreclose” or “prohibit.” 

pp. 58-59 (citing cases for the proposition that “[w]hile the Secretary 

has discretion * * *, that discretion must be exercised through the eyes of one who 

realizes she possesses it”). Indeed, the relief Petitioners seek is merely an order 

from the Court requiring the 2010 Regulation to be “remanded so that EPA can 

interpret the statute anew * * * and bring its experience and expertise to bear” in 

interpreting the statute. Pet. Br. 59, 52.

See, e.g., Pet Br. at 53: “EPA 

concluded that the legislative history foreclosed the possibility of baseline interpollutant transfers . . . .” Yet, EPA never made such a statement nor did it use such 

words in interpreting the statute. In any case, in interpreting a statute an agency 

will determine what a statute allows and may describe actions that are “prohibited” 

or “foreclosed” by the statute. But this reflects the agency’s substantive

interpretation of the statute based on its experience and expertise in applying the 

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statute, not a conclusion that the agency is, in the first instance, prohibited from 

even engaging in an interpretation of what the statute allows. 

EPA did, in fact, utilize its experience and expertise in interpreting the 

statute to determine not only possible interpretations of the statute but the best 

interpretation. As EPA stated: “After considering the language of section 607 and 

the legislative history, EPA believes that section 607(b) is best read as permitting 

only year-by-year inter-pollutant transfers. . . . Hence, EPA interprets section 607

as requiring that all inter-pollutant transfers, whether occurring between companies 

or within a single company, be conducted on a yearly – and thus temporary –

basis.” 74 Fed. Reg. at 66,421-22 (emphasis added). Thus, there is no need to 

remand this action so that EPA may reinterpret the same statute all over again.12

IV. THE 2010 REGULATION IS NOT IMPERMISSIBLY

RETROACTIVE

Petitioners assert that the 2010 Regulation retroactively extinguishes a right 

to which they are entitled: an increased baseline in HCFC-22 that resulted from 

inter-pollutant transfers Petitioners conducted during the prior regulatory period. 

Petitioners contend that Title VI does not provide EPA with authority to implement 

its rules governing company baselines retroactively. Pet. Br. 60-65.

 12 Although Petitioners seek a remand with regard to their statutory interpretation 

argument, the overall relief they seek is for the 2010 Regulation to be vacated. Pet. 

Br. 65. This, of course, would be inappropriate relief, since it would cause all 

companies’ allowances, even Petitioners’, to disappear until EPA promulgates a 

new regulation.

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Petitioners’ claim fails because its underlying premise is incorrect. By its 

express terms, the 2010 Regulation is prospective only; it applies only to 

production and consumption of HCFCs that occurs on or after January 1, 2010. 74 

Fed. Reg. at 66,418. It does not in any way attempt to “reach back” to find that 

Petitioners are in violation of Title VI because they conducted inter-pollutant 

transfers of baseline allowances and/or produced or consumed HCFCs in excess of 

their original baseline at any time through December 31, 2009. 

Petitioners concede that a regulation can only be impermissibly retroactive if 

it impairs vested rights acquired under existing law. Pet. Br. 61. EPA’s 

regulations make clear that permission to produce and consume HCFCs (through 

the grant of allowances) is not a right but a “privilege” granted by EPA under the 

terms of its own regulations. See e.g., 40 C.F.R. § 82.3: “Consumption allowances 

means the privileges granted by this subpart to produce and import controlled 

substances . . . . Production allowances means the privileges granted by this

subpart . . . .” (Emphasis added). Moreover, as detailed supra, this privilege 

expired on December 31, 2009. Thus, it cannot be said that any prior opportunity 

afforded to Petitioners to exchange baseline allocations of one pollutant for those 

of another was a vested right that was required to have lasting effect in regulations 

governing new regulatory periods. 

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At bottom, Petitioners assert that the 2010 Regulation is impermissibly 

retroactive because they relied upon EPA’s purported adherence to Petitioners’ 

own view of how baselines may be altered and made business decisions based on 

their expectation that this view would be applied in the next generation of 

regulations.13 The courts, however, have made clear that even when one’s business 

expectations are, unlike here, based on a grant of rights that are not set to expire, 

reliance on a particular regulatory application or procedure that is later reversed by 

an agency does not make the new regulation retroactive. As this Court 

summarized in Chemical Waste Management, Inc. v. EPA

It is often the case that a business will undertake a certain course of 

conduct based on the current law, and will then find its expectations 

frustrated when the law changes. This has never been thought to 

constitute retroactive lawmaking, and indeed most economic 

regulation would be unworkable if all laws disrupting prior 

expectations were deemed suspect.

, 869 F.2d 1526, 1536 

(D.C. Cir. 1989):

See also Mobile Relay Assocs. v. FCC, 457 F.3d 1, 11 (D.C. Cir. 2006) (“[A]n 

agency order that ‘alters the future effect, not the past legal consequences’ of an 

action, or that ‘upsets expectations based on prior law,’ is not retroactive.”)

(citations omitted); Sinclair Broadcast Group, Inc. v. FCC

 13 Not surprisingly, most other HCFC producers anticipated that EPA would 

utilize the same baselines for the 2010-2014 period as those previously applied 

without adjustments for inter-pollutant transfers, and based their own business 

decisions on that expectation. 74 Fed. Reg. at 66,419-21.

, 284 F.3d 148, 166 

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(D.C. Cir. 2002); DirecTV, Inc. v. FCC

Because Petitioners held no vested rights to see their inter-pollutant transfers 

reflected in a new regulatory regime, and because the 2010 Regulation merely 

upsets Petitioners’ expectations based on prior law that expired under its own 

terms, the 2010 Regulation cannot be deemed to be impermissibly retroactive.

, 110 F.3d 816, 825-26 (D.C. Cir. 1997) 

(finding that an explicit policy to allocate surrendered broadcast channels free to 

existing licensees, later abandoned in favor of an auction policy, was not a 

retroactive rule). 

For the foregoing reasons, the Petitions for Review should be denied.

CONCLUSION

 Respectfully submitted, 

DATE: March 30, 2010

OF COUNSEL:

DIANE E. McCONKEY

Office of General Counsel

U.S. Environmental Protection Agency

Ariel Rios Building 

1200 Pennsylvania Avenue, N. W. 

Mail Code: 2344A 

Washington, DC 20460

IGNACIA S. MORENO

Assistant Attorney General 

Environment & Natural Resources Div.

PERRY M. ROSEN

/s/ Perry M. Rosen 

United States Department of Justice

Environment & Natural Resources Div.

Environmental Defense Section

P.O. Box 23986

Washington D.C. 20026-3986

Tel: (202) 353-7792

Fax: (202) 514-8865

perry.rosen@usdoj.gov

Counsel for Respondent EPA

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61

This brief complies with the type-volume limitation of Fed. R. App. P. 32 

(a)(7)(B) because this brief contains 13,919 words, excluding the parts of the brief 

exempt under Fed. R. App. P. 32 (a)(7)(B)(iii). This brief complies with the 

typeface requirements of Fed. R. App. P. 32(a)(5) and the typeface style 

requirements of Fed. R. App. P. 32(a)(6) because the brief was prepared in 

proportionally spaced typeface using Microsoft Word 14 point Times New Roman 

type.

CERTIFICATE OF COMPLIANCE UNDER FED. R. APP. P. 37(A)(7)(b)

So certified this 30th day of March, 2010, by

/s/ Perry M. Rosen

Perry M. Rosen

Counsel for Respondent EPA

Case: 09-1318 Document: 1237311 Filed: 03/30/2010 Page: 72
62

I hereby certify that the foregoing Brief of Respondent Environmental 

Protection Agency was electronically filed with the Clerk of the Court using the 

CM/ECF system, which will send said Brief to the attorneys of record for all 

parties in this case.

CERTIFICATE OF SERVICE

March 30, 2010 /s/ Perry M. Rosen

Counsel for Respondent EPA

Perry M. Rosen

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